Demand for bandwidth: A multi-billion dollar opportunity for suppliers

The demand for telecommunications infrastructure improvements to handle the explosion in Internet-related data traffic is creating a multi-billion dollar opportunity for component and equipment providers, according to William A. Magill, a telecommunications industry analyst for NationsBanc Montgomery Securities.

"I think the late 1990s will be viewed as a demarcation point in the transition from service-specific electric networks to a new network paradigm that is based on multi-service optical transmission," Magill said. "Fiber-optic networks, with far greater capacity than traditional copper-wire networks, are the only logical way for telecommunications companies to meet the bandwidth demands generated by the exploding use of the Internet," Magill said. Magill said this growth represents a "multi-billion dollar opportunity" for suppliers of the components and equipment involved.

Magill made his comments at the 16th annual NationsBanc Montgomery Securities Technology Week Conference. He explained that cheaper bandwidth leads to more subscribers willing to pay for faster access. This in turn attracts more competition into the market to offer high-speed networks more bandwidth. Driving all this demand is use of the Internet and the proliferation of intranets and extranets.

Magill said that revenues generated by data traffic over traditional telephone lines grew by 35 percent between 1997 and 1998, compared to a 7.7 percent growth rate in voice calls during that same period. Data traffic itself, he said, is growing 10-times faster than voice traffic. He predicts that data traffic will surpass voice traffic on telephone lines sometime between 2000 and 2002.

This transition from a voice-centric to a data-centric network is changing network architecture. According to Magill, broadband, multi-service architectures are evolving from application-specific networks. Systems integration is occurring in which a variety of functions are being built into a single box. He also added that there is an "inexorable" movement away from electrical transmission toward optical transmission, and that merchants who can support high-volume orders for components and systems for fiber-optic networks are the best-positioned to capitalize on this burgeoning growth.